December 19, 2015

Lola v. Skadden Arps has settled (reports here and here). Lola is a wage-and-hour case with wide implications for the legal profession. To recap (see my previous post on the Second Circuit’s recent decision here), David Lola, a lawyer licensed to practice in California, took a job as a document reviewer for Skadden Arps in a large MDL venued in a federal court in Ohio. He was placed in that position with Skadden by a staffing agency, Tower Legal Staffing. (Tower Legal provides attorneys and paralegals to law firms on a contract basis, and thus remained Lola’s direct employer during his period of service to Skadden.) Lola spent 14 months reviewing documents in North Carolina for the case; his Complaint alleged he typically worked 45-55 hours per week. He was paid $25 per hour, without overtime.

After the engagement ended, Lola sued Skadden and Tower Legal in a Fair Labor Standards Act “collective action,” which is the FLSA’s statutory version of a class action (see 29 U.S.C. § 216(b)). Lola claimed that he and all those similarly situated were entitled to time-and-a-half for work in excess of 40 hours per week.

The FLSA exempts from overtime requirements any “employee employed in a bona fide professional capacity,” including “any employee who is the holder of a valid license . . . permitting the practice of law . . . and is actually engaged in the practice thereof . . . .” 29 C.F.R. § 541.304. Skadden and Tower Legal argued that Lola’s document review responsibilities constituted “the practice of law” within the meaning of the FLSA and supporting regulations, and he therefore was exempt from overtime pay.

Lola admitted that he was licensed to practice (the fact that it was in a jurisdiction with no connection to any aspect of his work doesn’t matter under the FLSA), so the wage-and-hour question boiled down to whether or not he was “actually engaged” in the “practice of law.” Lola alleged that his responsibilities as a document reviewer were completely mechanical and devoid of judgment—that he was given a list of key words and names and told to “code” documents in a specified way if those words or names appeared in the document. Period. On a motion to dismiss (where these allegations had to be taken as true), the District Court found that these activities constituted “the practice of law.” The Second Circuit reversed, finding that work that ministerial and rudimentary did not comprise the practice of law, though more typical document review work requiring “a modicum of judgment” likely would. (As related in my earlier post, most document review jobs do involve some degree of judgment in determining documents’ responsiveness to a request or potentially privileged status, judgments that a fair reading of the appellate opinion suggests would qualify as “the practice of law” under the standard the decision articulates. The Second Circuit agreed with the District Court that the FLSA borrows the law of the state governing the services at issue to determine whether they qualify as “the practice of law,” which in this case was North Carolina, though North Carolina’s definition is typical in most respects.) The case was remanded to determine whether Lola’s job required him to be the automaton he alleged.

I'll address the settlement and what it does and doesn't tell us about the future after the jump.

The settlement. The case has now settled for $75,000. That sum covers the claims asserted by Lola and two other document reviewers who had opted into his collective action as the statute allows, as well as the Plaintiffs’ attorney’s fees.

Does the settlement tell us much about the merits? Hard to say. A letter-brief Plaintiffs’ counsel submitted to the Court seeking the court approval necessary because this was a “collective action” says that the settlement amount provides Lola and the two other opt-in Plaintiffs each 100% of his unpaid overtime plus one-third of his maximum statutory “liquidated damages.” (FLSA provides a presumptive statutory penalty equal to 100% of a plaintiff’s unpaid wages, which can be reduced if the employer shows that it violated the Act in good faith. The Plaintiffs’ letter-brief points out that the District Court’s initial grant of the Defendants’ motion to dismiss would support contentions of good faith that would entitle Defendants to oppose the “liquidated damages” otherwise payable. That’s probably right.)

The letter-brief also asserts that counsel’s “lodestar” amount (hours actually expended times a reasonable hourly rate) “exceeds $90,000,” of which they are accepting “less than half” out of the settlement. A $90,000 lodestar given a hotly contested, law-heavy motion to dismiss plus a fully briefed and argued Second Circuit appeal doesn’t strike me as the least bit surprising. Although a standard one-third contingent fee would be only $25,000, approval of a higher fee in these circumstances seems assured. My guess is that counsel is getting $40,000—based on the allegations in the complaint, Lola’s unpaid overtime probably amounts to about $7,500; two other Plaintiffs with similar claims plus a one-third premium for the penalties adds up to around $30,000, plus some small bonus to the original named Plaintiff that is reflected in the letter-brief and common in cases like this, leaves about $40,000 for the lawyers.

Is it a good deal? Why would the Defendants pay 100% of the unpaid overtime plus a substantial premium for penalties and attorneys’ fees to settle the case, especially when the facts likely to emerge probably favor them? I don’t know, but a number of possibilities come to mind. Am Law Daily reports that Tower Legal is paying the entire settlement amount. That makes it easy for Skadden to acquiesce. Maybe there is a quiet understanding that Skadden will use Tower for some future staffing needs (which Skadden is going to have anyway). And there may have been a provision in the staffing agreement between Tower and Skadden that made Tower responsible for wage-and-hour compliance (do any readers know if such a provision is typical?--please post in the Comments). More generally, the big-dollar risk here was in this case’s status as a potential collective action, with scores or even hundreds of similarly situated legal process workers’ rights implicated. Getting out without certifying a class or having to go to the expense of litigating how blindingly automatic document reviewers’ responsibilities must be to qualify for overtime under the state-law rule the appellate decision announced could have real dollar value reflected in the settlement premium.

What happens next? Of course, this settlement may be just the beginning. The smart money bets that among the repeat players in the document-review-staffing game—staffing agencies such as Tower Legal; legal process outsourcers such as Pangea3 (which, like numerous similar businesses, has operations in the US as well as overseas); large firms such as Skadden and many others— before now very few have paid overtime to their document reviewers, especially to the licensed lawyers who make up the majority of document reviewers since the BigLaw Layoffs of 2009-10 and Incredible Shrinking Law-Job Market since 2007 (see here at pages 27-33 regarding the former, and here at pages 569, 571-78 regarding the latter). Still pending is a similar suit in the Southern District of New York against Quinn Emanuel and the staffing agency Providus. Watch for a raft of new actions looking back over the two-year FLSA limitations period.

It will also be interesting to see whether document-review employers start paying overtime going forward. And if they do, watch for whether and how this changes the employers’ practices—one way to avoid the overtime problem is to use more people for no more than 40 hours per week each. Ironically, this will in turn effectively reduce the amounts that doc reviewers can earn overall, given that a fair number of them have reportedly depended on over 40 hours of work per week without time-and-a-half for overtime. Equally interesting will be which players—legal process workers; law firms; outside personnel providers; clients—end up bearing any additional costs that overtime requirements may impose. (H/T to Jim Wagner at Apogee Legal for some of these thoughts.)

But whether looking back or forward, it would seem that most employers have strong arguments that their document reviewers exercise enough judgment to be considered engaged in “the practice of law,” at least under the modest standard the Second Circuit borrowed from North Carolina law. This may be a fight that has to be fought on the facts before the repeat players are secure enough in their knowledge of the law to proceed without dispute. I encourage readers with knowledge of the industry or governing law to offer their opinions in the Comments.

In the long run, though, I’d bet on the employers here. In the 21st century, there is little profit in having human beings at $25 per hour (plus overtime) scan documents rotely for key words or names as Lola alleged he was tasked to do. Computers can do that faster and cheaper, which is why I always wondered if Lola’s allegations about his responsibilities would ultimately prove out. If Lola remains the law and North Carolina’s definition of “the practice of law” remains typical of the state law FLSA borrows, follow-on actions may yet answer that question for us.

Is it a good decision? But is Lola well decided? I think not. Here are several reasons:

No clarity in application to commonly presented facts. The definition of “practicing law” prevailing in the several states that Lola instructs the federal courts to borrow is incoherent. I may drag you through the branches of its strange and inconsistent briars in some future post. (Something to look forward to until the new phone books arrive; don’t say I haven’t promised you anything awesome lately.) Suffice for now to say that those who claim to know “the practice of law” when they see it are hallucinating. Treat yourself to a tiptoe through the Second Circuit’s efforts to make sense of the North Carolina law on the subject (which, as I’ve said before, is typical in most respects) to get a sense of similarities between any clear application and a greased pig. Made of Jell-O. On meth. So (pace my predictions above) we just don’t know with much precision when law-licensed document reviewers will be exempt from overtime.

No fairness to legal process workers. One thing we do know is that, because the FLSA exemption on which Lola relied is conditioned on an employee’s possession of a law license, the law in its current state entitles the workers with law degrees and bar cards to less pay than those who lack them in these generally head-thumpingly dull, moderate-wage jobs. Go figure.

No coherent definition of “practice” or “unauthorized practice.” It’s also fair to say that Lola illustrates the frustrating lack of coherence between “the practice of law” and “the unauthorized practice of law” (referred to widely in the Professional Responsibility community as “UPL”). (Heads-up: This last portion of the discussion takes a different and more modest view of this issue than the one I offered in my original post. Hat-tips to Mike Risch and Gregg Polsky for persuading me that my original effort overstated the problem.) Engaging or assisting in the unauthorized practice of law (that is, “practicing law” in a jurisdiction without being licensed or otherwise authorized to practice there) is an ethical violation and at least a misdemeanor in every state I know of. And remember, it’s “the practice of law” as used in state law to define unauthorized practice on which the Lola Court relies to decide who gets overtime. The logical implication of tying these two otherwise unrelated categories together definitionally is that, every time you decide that a particular activity comprises “the practice of law” for wage and hour purposes, you need to find a basis on which its performance is duly authorized in the jurisdiction in which it’s being done to avoid subjecting the employer to professional discipline and potential criminal penalties.

Does that mean that, if Skadden and Tower Legal were right, and document reviewers are engaged in “the practice of law” and therefore exempt from overtime, that they are “practicing law” without a license, and Skadden is assisting them in doing so? No, not always. Model Rule of Professional Conduct 5.5(c) says that a lawyer licensed in any jurisdiction (such as Lola) may “temporar[il]y” “assist[]” another lawyer with tasks arising out of a proceeding in another jurisdiction in a tribunal before which that other lawyer is authorized to practice. That would probably protect Lola (and Skadden’s partners) from UPL charges (even though it defines unauthorized practice only for disciplinary rather than civil or criminal purposes), but only because Lola has a law license somewhere.

North Carolina, the state whose law governed the definition of “practicing law” in Lola, has adopted a narrower version of Rule 5.5(c) that would not protect David Lola’s document review activities. And even under the Model Rule, what if Lola and those like him, wishing to earn overtime going forward, temporarily give up their law licenses and take inactive status? And what about the unlicensed staff (paralegals, legal assistants, secretaries) who engage in document review and other skills involving some modicum of legal judgment (drafting correspondence, documents, deeds, contracts, pleadings, briefs, etc.) in huge numbers every day? All of these people are potentially practicing law without a license, at least according to Lola’s definition. Some will be protected by legal or ethical rules like Model Rule 5.5(c), but others will have to find solace elsewhere. Such solace does exist, and it offers a much better rule to resolve the dispute presented in Lola.

How Lola should have come out. The simple solution that the Lola Court missed was the universally adopted rule that proper attorney supervision over staff’s performance of many tasks that otherwise would be “the practice of law” makes whatever the staff is doing not unauthorized practice. The idea was right in front of the Court’s nose, as it is featured prominently in a recent North Carolina Formal Ethics Opinion that the Second Circuit opinion devoted considerable effort to torturing into the eventual basis for its decision. The textual basis for the solution is that “the practice of law” involves “independent legal judgment”—a phrase the relevant ethics opinion used, and that recurs in plenty of UPL discussions—and supervised exercise of legal judgment is not “independent.” Thus nonlicensed staff engaged in research and drafting of the kind that hundreds of thousands of such staff engage in every day across America are, when properly supervised by a licensed attorney, not “practicing law” at all—the supervising attorney is.

Why did the Lola Court miss the easy way out of this mess? Probably because the parties do not appear to have raised it. Certainly Tower and Skadden would agree that, whatever degree of judgment Lola was actually exercising, he was properly supervised. The allegations of Lola’s Complaint are not consistent with any other conclusion—after all, Lola’s main argument, based on the facts alleged in his pleading, was that he was so closely supervised he was not exercising any independent judgment at all. But if Skadden (and Tower Legal) had accepted the premise that supervised document reviewers (and unlicensed staff) don’t exercise “independent legal judgment” because they are supervised, they would have been conceding that document reviewers are not “practicing law,” and thus not subject to the FLSA overtime exemption on which the Defendants relied. What’s more, not only do BigLaw employers like Skadden generally supervise their document reviewers as a matter of good practice, they can’t afford to contend otherwise—inadequate supervision is a serious ethics violation. See Model Rules 5.1, 5.3.

It would appear that Plaintiff’s counsel missed a great opportunity to advocate a simple and much more easily administrable standard that would have guaranteed legal process workers overtime in many cases. The result is an appellate decision that creates a cockeyed compensation scheme in which licensed lawyers get paid less than paralegals for document review, and the scope and meaning of the “practice of law” are more garbled than ever.

Comments

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It seems short-sighted to publicly concede that you will settle doc review wage cases when the people who would bring those kinds of cases are underemployed people with law degrees. Considering the ridiculous profits per partner firms like Skadden bring in, I would not be disappointed if they get hit with a lot more of these.

Wow. $25/hour is a windfall for doc reviewers, especially in North Carolina. I've never made more than $21/hour, and usually the going rate around here is $19/hour. With no benefits, of course.

And at that rate, there's hundreds of un- or under-employed attorneys in this mid-sized market eager to do the work. Doc reviewer backgrounds run the gamut, from people with double Ivy (undergrad, law school) backgrounds, to people who went to Infilaw schools and barely passed the bar.

Although $20/hour full-time for a whole year equates to approximately $40,000 per year, doc reviewers often go weeks, if not months, in between projects earning nothing. You're pretty lucky if you manage to pull down $30K in your average year.

Also, doc review is such a toxic thing to put on your resume that it inhibits you from getting better jobs in the future. So the sad thing is that once you go down this rabbit hole, there's no getting out of it. There's people who have been doing this for 20 years who have their own kids entering college, and they haven't paid off a dime in principal on their college loans (which were much lower than today's typical grad accumulates). One guy has had his loan balance basically double from $150,000 to $300,000 because he can't even pay off the interest. He's older and needs to retire soon.

The practice of law is getting somebody out of Jail. That is its highest purpose. Second is getting a client back his driver's license after his 4th DUI and five years of sobriety so he can finally get that assistant shift manager's position at Burger King. And lastly, is saving a CDL trucker his, so he can support his family and mother in law with dementia while earning 42K a year. A driver's license is the most important document ever created in the history of man. More important that the Constitution, Bill of Rights, Torah, Letter From the Birmingham Jail and Magna Carta combined.